Phil Fernandez, President and CEO, Marketo
Phil Fernandez is a Silicon Valley veteran, with 30 years of experience (including a couple of successful IPOs) in building and managing breakout technology companies. Prior to Marketo, he was President and COO of Epiphany, a public enterprise software company known for its visionary marketing products. Before this, Phil was COO and SVP of Products and Services at Red Brick Systems, a pioneering data warehouse vendor. He has also held leadership positions at Metaphor Computer Systems, Stanford University Medical Center, and Masstor Systems. In both 2009 and 2010, Phil was named to the Sales Lead Management Association’s list of “50 Most Influential People in Sales Lead Management.” Phil holds a BA from Stanford University.
Denis Pombriant: Phil, you’ve been involved in one way or another with marketing automation and analytics for a long time. Today it seems analytics and marketing are hot topics. What’s different about the market today? Is there greater receptivity in the general population to the ideas that make marketing automation so important?
Phil Fernandez: You know, I was building analytics for marketing in 1988 (our biggest customer was Procter and Gamble), and we were doing high end analytics trying to figure out what color Tide should be, who’s buying it and who’s not. So, as you mention, this is totally not a new topic, but it’s incredibly gratifying to see the shift. Instead of bashing my head against the wall for twenty years, it seems like it’s really happening now. I think there are two questions: Why now? And, is the general population more receptive?
Why now, is a couple of things. First, the amount of data has just exploded with the Internet, Google, social media — what was big in 1988 is a joke now, and therefore the value and the ability to see deeply into an organization and into customer behavior with analytics is very different today. Second, the world has changed. The way buying works, the way we market, the buyer and the seller, are all going through huge changes and everyone is grappling with how to cope with it.
So that’s what’s different at the high end, but I don’t think the general population is necessarily more receptive. You know, we’re just hearing now that new browsers will have new security controls so that marketing tracking can’t happen. I think there’s some backlash among some users in the general population, while the business community is jumping on this harder than ever before. It’s going to be interesting to see what happens with all of that.
DP: Sort of like an arms race?
PF: It is a little bit like an arms race in some sense. The interesting thing that I believe will be telling is whether a younger generation cares about any of this. I think the Facebook generation doesn’t care about being tracked and doesn’t care about analytics being applied to them, so we’re almost at a place where the backlash is at its peak. It will be interesting to see how this plays out.
DP: That’s good news in some respects but it also puts more responsibility on our shoulders.
PF: Yes, I think that transparency and best practices have really come to the top. There are a lot of companies working on marketing analytics and the best will do it with a white hat on. At Marketo, we think we clearly have white hats on, and by that I mean being very clear about our policies, especially related to giving users options on do not track. I think that makes all the difference in the world when companies approach things in a transparent way and put power into the users’ hands.
DP: There’s a misconception in some circles about what business analytics is and is not. Many people equate analytics with reports but reporting is really the end product. What is analytics and why should people care about it?
PF: Well, analytics can mean a lot of different things. It can be online, offline; it can be operational, meaning looking at current, real time aspects of a business working, or looking back many years. So there are many definitions of analytics. At the highest level I’d say it’s looking at data about some scenario — users, customers, traffic on roads. And we try to look at the data with statistics, with machine learning methods over time to extract insights that are actionable.
Reporting is a bunch of numbers on a page and you leave it to the user to figure out ways to take action. I think the promise of analytics and where analytics is going today is to guide the consumer — whether that’s a businessperson or an end user — into making a better decision. That decision can be about how to increase the value of a portfolio, or how to achieve better marketing revenue effectiveness in a company, or how to get a supply chain working better. Ultimately, it’s actionable insight that sets analytics apart and makes it so exciting today.
DP: My favorite example is Pareto analysis where you might try to apply the 80/20 rule to find some insight into real market behavior.
PF: Absolutely. It’s much deeper insight than just, “This happened and that happened.” The ability to connect the dots is critical, and the ability to help guide future actions that will change an outcome. You have the ability to say, “This is the outcome we want, this is the data we’re looking at, what kinds of levers exist to affect the outcome?” And when you’re able to guide behavior in a world that’s rooted in facts, rooted in data, that’s where it gets powerful.
DP: Many marketing experts are advocating for marketing to become more quantitative so that marketing can take a place in the corporate discussion. How do marketers get from what Thor Johnson describes as “PR and brochures” to having a seat at the table?
PF: That’s a huge question that has many pieces. First of all the “seat at the table” that marketing needs to get is a seat at the revenue table. It doesn’t do any good to do a lot of analysis to see how marketing works better. To earn a seat at the table marketing has to become an integral part of the revenue machine inside the company and that means being able to relate everything they do — every dollar they spend, every action they take, every program they run — to how it affects the top line and bottom line of the business. It’s about giving leads to sales and how it’s helping them be more effective and grow.
Marketing is becoming far more attuned to how the results of their work actually produce revenue. That’s key because if marketers are going to walk into the CEO or CFO’s office and ask for that seat at the table they need to do it using a vocabulary and a language that makes sense. The head of sales always talks to the CFO and the CEO about how much they’re going to sell in the month – that’s the language they care about. When the marketer walks in and talks about this many page views or that many qualified leads, it doesn’t mean anything to the top business executives. So learning to speak the language is critical.
Number two. Once marketers learn to speak the language, they need to use analytics to do their job better. If they shine a big bright light into the room and say I’m going to talk about revenue, they now have to perform. They need to use analytics and quantitative methods to say, “This webinar really worked,” because it produced real buyers, and this trade show didn’t work so I shouldn’t go there anymore. Then they’re showing that they’re making decisions based on quantitative methods rather than on art or guts and intuition. That’s critical because facts can be made to lie, but used correctly they don’t lie.
Those things all come together to give the marketer a seat at the revenue table. All of that said, a topic I’ve been thinking and writing about lately is that none of this means that the more creative side of marketing is unimportant. I sometimes worry that all this talk about the quantitative side of marketing is losing sight of the creative dimension of marketing, which is important too.
DP: Sort of like the sociology of marketing.
PF: Sure, and in a more concrete way, as soon as you go to build a data driven marketing organization, there’s still this beast you have to feed — you still have to deliver content to the customer because that’s part of the equation of what marketing has to sell. Marketing doesn’t have widgets to sell, it has ideas.
DP: When you add analytics to customer data, what are some of the things that your customers can discover about their customers that might surprise them? Can you give an example of one of your best customers and what they learned as a result of marketing analytics — something they wouldn’t have known?
PF: Well, let’s take a look at Marketo because I can talk in more factual detail about my own company because my customers don’t expose all their cost parameters to me.
In the fourth quarter of last year (2010) we spent about seven million dollars on marketing, so that’s a pretty large amount. Cost per prospect ranged from $1.60 to $130 across a set of different marketing programs. We did webinars, seminars, trade shows. We bought email lists and advertising; we did about 275 programs that are discrete instances where as CEO I saw a check come across my desk. As we did the retrospective analytics we saw a hundred-fold difference in the effect of those spends. That’s a brand new insight that wasn’t available to us until we built our new product. That’s information that is available to the very biggest marketing groups, but in the main, most people didn’t have access to that.
How incredible is that? The head of marketing can now easily say, I’m going to stop doing the $130 programs and do more that look like the $1.60 program. It’s profound the kind of impact that has on the marketing organization.
DP: Sure, and it impacts the ability to have an intelligent conversation with the C-level.
PF: Yeah! All of a sudden you can talk about investments and say to the CFO, I want to spend this money but I want to shift the dollars from here to there because the return on investment was X here, and there I see a 3X opportunity for return on investment. When a marketer appears in a CFO’s office and uses language like that the CFO first thinks, “Who are you and what did you do with my head of marketing?!” But the second thing the CFO thinks is, “Wow! This is incredible, let me open my mind to investing more and to how those investments are actually driving revenue.” It’s transformative for the way an organization can work.
DP: According to a recent report from Harvard Business School, social media is generating vast amounts of data that are not being adequately mined. Is there gold in all that customer data?
PF: That’s a good question. You know, everybody is in a scramble over what to do about social media and all that data. I think from a technology perspective what it takes is rapidly being answered. In some sense, all analytics need to tell you apart from me and tell us apart from the other million people in the database. So typically marketing analytics have used an account number or an email address to differentiate us. The trouble is that with social media, people have a whole new set of identities — a Facebook handle, a Twitter handle, whatever.
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If I tweet and say I’m looking at Dell and HP laptops for my niece, and both companies figure out who I am from my email address, they can both send me an offer for $200 dollars off on a laptop. However, it’s not clear if that’s appropriate action to take. So the new frontier in social media is not necessarily analytics, because all of the tools we had before still work. The question now is, what’s appropriate to do with the information that we can get. I think we’re still a couple of years out from having those answers.
DP: Let’s talk about Revenue Performance Management. It’s sort of the new big thing and it has become a very important idea in many circles. What is the role of marketing automation and analytics in driving revenue performance improvement?
PF: Absolutely, it’s an idea near and dear to my heart. I, personally, and we at Marketo, have been trying to drive the emergence of the Revenue Performance Management idea. For years there’s been this category of marketing automation, and that’s fine because some of the tools automate the marketing function. But, I think categories and products and business processes should be named for the thing they’re intended to do. Nobody wakes up in the morning and sets out to automate marketing. Companies don’t exist to automate marketing, they exist to make revenue. So, at the highest level, I think it’s simply about assigning a name to this category that reflects the business outcomes that are being sought.
CEOs, CFOs, heads of marketing and sales, wake up in the morning and ask, “How am I going to make more revenue?” “How do I improve my sales efficiency?” “How do I improve my cost of revenue?” Revenue performance management is starting to move the dialogue from the sub-business processes that enable that, to the Holy Grail, the end objective, which is increasing growth, increasing revenue.
Marketing automation is a key piece of a broader strategy that we call Revenue Performance Management. You need to automate the interactions with the buyer, you need to analyze the interactions with the buyer and you need to take the insights you get from that to make yourself more relevant to the buyer. You need to deliver leads at the right time to sales so that sales can improve its effectiveness. Those are all elements of marketing automation. But if you think about what end-to-end Revenue Performance Management is all about, it’s also about helping the sales person to be effective. This means giving the right tools to every person along that revenue supply chain — from where you meet the customer to where you close the deal and serve the customer — so that they can work as a single unit to improve effectiveness.
Revenue Performance Management is all about that end-to-end process and doing that process ever better and using analytics to improve it — what’s working and what’s not? Where’s the dollar program and where’s the hundred dollar program? Who’s the sales rep that’s performing and who isn’t? Who should the sales rep call, and who really wants to buy today? The focus is on an end-to-end view and the end result, which is more revenue. This combination of analytics and operational tools is what Revenue Performance Management is really all about.
DP: That says to me that sales and marketing need to be more closely aligned than they traditionally have been.
PF: Yes, and incredibly so. I was just talking to a woman at one of our customers the other day (a big media company). She told me she’d just been at a sales training class for a week with a venerable sales training organization. She said that for the week, they told her that as a sales person you’re the only person that matters. You’re the ultimate entrepreneur, you don’t have to rely on anyone else, you have to hunt the food you’re going to eat. To me that’s shocking.
We’re still training new sales people that they are an island. But they’re not an island, and the reason is that the customer is making the decision today. Every time the customer goes to a website, or goes to a webinar, every time the customer tweets or talks to a sales person, they’re making the decision about how they’re talking to sales and marketing. Whether or not the sales person wants to be the ultimate lone wolf, the customer has made the decision for them that they’re not.
What’s happening then is that the traditional silos — marketing talks to the customer first, sales talks to the customer later — are all broken because sales and marketing are not calling the shots anymore. What’s really going on is that the way marketing and sales interact with buyers needs to be rethought because the buyers are saying so. I think this will lead to completely new organizational structures. We’re going to see more executives that are called Chief Revenue Officer, that are not just glorified sales executives but that are truly business officers that are thinking about what the customer wants and how to craft and organize the business to optimize revenue. It’s a major new discipline we’re going to see over the next few years — completely new organizational strategies and new job titles. I think it’s a super exciting time. This stuff has been stuck in the mud for forty years, and we’re finally going to see some traction and see a very interesting new world over the next five years.
DP: Sounds like the sales process is being converted by the customer into the buying process.
PF: Yes, the buyer’s in control of the process every step of the way. They make the decisions at the points they choose, and those decisions just don’t follow a linear sequence. In this new process, you can’t assume the next thing the sales rep wants to say is the next thing the buyer wants to hear. That new reality just completely changes the salesperson’s job. Now, it’s all about listening and responding. Instead of the old approach of “always be closing,” the role of the revenue executive is to always be listening to the needs of the buyer so that when the magic moment comes, when the buyer puts down their money, you’re there to be on the other side of the transaction.
DP: When I look at your product offerings I see a lot more than lead generation, nurturing and scoring. You have solutions for sales and even for corporate performance and executive insights. Is there a practical limit of what business analytics can do for a company and are we close yet to maximizing the benefit?
PF: Yes, I suppose there is a limit. There are no magic bullets in the world and business analytics is not a magic bullet either, unfortunately. But there’s still a lot of low hanging fruit, it’s still early days.
What’s most interesting to me is how much diversity there is in the impact of analytics, if you just think of some of the things in our lives. I bought a new washer and dryer not long ago and my expectation is that they’re going to last fifteen years before I have to do a service call. The last time I bought appliances I didn’t have that expectation. What’s that have to do with analytics? Well, there’s been a continuous process with analytical strategies like Six Sigma over the last twenty years of improving quality and efficiency in manufacturing. What are the defects? Where are they coming from? What’s causing that washer/dryer to break? In areas like supply chain and manufacturing we’ve seen business analytics change our world.
We’ve had a period of low inflation and improved productivity because of analytics, and that’s [manufacturing] a fairly mature area. But if you look at the customer and revenue performance, and you understand how people put revenue on the board, we’re still in 1973 from an analytics perspective. It’s still very much of an art. We still don’t really understand how buyers and sellers interact. So if you look at the kinds of changes that analytics have wrought in the supply chain and you look at the absence of them in marketing, you can ask what it would be like for revenue growth if we had twenty years of the same kind of improvement we saw in manufacturing and supply chain. I think even in those areas that are mature, there’s more to go, and in those areas that are immature, we’re just at the start of another burst of analytically-driven business process improvement.
DP: We’ve just been through a rough patch in the economy and things appear to be turning around. Generally what are some of your impressions of the climate for investing in emerging companies these days?
PF: I think it’s a great time to be an emerging company. I’ve been in Silicon Valley for thirty years and I’ve seen a lot of cycles and built a number of companies, and there are clearly ups and downs. Larry Ellison can talk about how tech is a mature market and that’s all just nonsense. Number one, emerging companies are still amazingly creative and as alive as when I came out of college in 1981 — as engines of growth and wealth creation. And investment is still flowing to the best ideas and the best companies, and always does. So overall there remains a vibrant culture in investment and innovation ahead. At Marketo we raised twenty-five million dollars in working capital to grow our business in November of last year, and it took me about a week.
DP: But you’re a known brand.
PF: Yes, but it’s a known company with successful results and people want to be associated with winners. But the point is, people are writing checks and people are investing at every stage of the cycle. I had lunch yesterday with a former Google executive who is doing a large angel investment every month, creating new startups on to late stage investments like I just talked about. The climate is just fine for good ideas.
DP: Cool. Thanks for your time. I really enjoyed our conversation.
PF: Thanks.
